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Britons have been urged to check their tax code on their payslip to make sure they are paying the correct amount of tax. It’s important to check now as a person’s tax code may have changed going into the new tax year.
A person’s tax code shows how much of their earnings should go to the Government in taxes.
Individuals are responsible for checking their tax code is correct and informing HMRC if it is incorrect.
A Martin Lewis fan recently shared their story of how their wife had been on the wrong code for four years and she received a £2,585 refund.
People should also be aware that if their tax code is incorrect, it may be the case they are underpaying tax and so their tax bill could increase if it is corrected.
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A person may end up in the wrong tax code for several reasons such as if they change jobs or if their salary changes.
These are the letters that may appear in a tax code and what they mean:
- L – The person is entitled to the standard tax-free Personal Allowance of £12,570
- M – Marriage Allowance: they have received a transfer of 10 percent of their partner’s Personal Allowance, which is £1,260
- N – Marriage Allowance: they have transferred 10 percent of their Personal Allowance to their partner
- S – Their income or pension is taxed using the rates in Scotland
- T – Their tax code includes other calculations to work out their Personal Allowance, such as if it is reduced because they have a high income
- 0T – Their Personal Allowance has been used up or they have started a new job and their employer doesn’t have the details they need to give them a tax code
- BR – All their income from their job or pension is taxed at the basic rate
- D0 – All their income from this job or pension is taxed at the higher rate
- D1 – All their income from this job or pension is taxed at the additional rate
- NT – They are not paying any tax on this income
- K – Income not taxed another way that is not worth more than the tax-free allowance.
People should look out for tax codes that include ‘W1’, ‘M1’ or X at the end, as these are emergency tax codes.
A person may be put on one of these tax codes if HMRC does not get their details in time after a change in circumstances.
This could include a person taking up a new job working for an employer after previously being self-employed, or starting to claim their state pension.
Information on the Government website states: “Emergency tax codes are temporary. HMRC will usually update your tax code when you or your employer give them your correct details.
“If your change in circumstances means you have not paid the right amount of tax, you’ll stay on the emergency tax code until you’ve paid the correct tax for the year.”
A person cannot check their income tax for the current year if they pay their income tax solely by self assessment.
Thousands of Britons face tax increases this financial year as some allowances and thresholds have been reduced.
The threshold for capital gains tax has decreased from £12,300 to £6,000. The threshold will decrease again to £3,000 next year.
